CONCEPTUAL RESEARCH ON THE BUSINESS
IMPLICATIONS OF COVID-19 IN SABAH USING INDUSTRY ANALYSIS TOOLS
Datu Razali Datu Eranza1, Jabil Mapjabil2, Andy Lee Chen Hiung3, Arsiah Bahron4, Hasnah Tanalol5
1Fakulti Perniagaan, Ekonomi dan Perakaunan, Universiti Malaysia Sabah, Malaysia (E-mail: [email protected])
2Institut Kajian Orang Asal Borneo (BorIIs), Universiti Malaysia Sabah, Malaysia (E-mail: [email protected])
3Fakulti Perniagaan, Ekonomi dan Perakaunan, Universiti Malaysia Sabah, Malaysia (E-mail: [email protected])
4Fakulti Perniagaan, Ekonomi dan Perakaunan, Universiti Malaysia Sabah, Malaysia (E-mail: [email protected])
5Fakulti Kejuruteraan, Universiti Malaysia Sabah, Malaysia (E-mail: [email protected])
Article history To cite this document:
Received date : 25-8-2020 Datu Razali Datu Eranza, Jabil Mapjabil, Andy Lee Chen Hiung, Arsiah Bahron & Hasnah Tanalol (2020).
Conceptual research on the business implication of COVID-19 in Sabah using industry analysis tools.
Journal of Islamic, Social, Economics and Development (JISED), 5(32), 26 – 36.
Revised date : 26-8-2020 Accepted date : 23-10-2020 Published date : 25-10-2020
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Abstract: COVID-19 Pandemic undoubtedly gives huge impacts to business organization especially in Sabah tourism industry. The outbreak has led to the resort of lay-off of workforce, retrenchment of staff, and downsizing of business. To sustain, organizations must formulate strategy to deal with the recession whilst in the meantime, there is a need of research to conduct study on the impacts of the pandemic and with such results can be used for government to formulate better intervention plan and strategic planning. This paper consists of background of study, problem statement, research questions and objectives, and research design. From the discussion, it is generalized that few trends are suggested by global consultant companies, and there is a need to conduct industry analysis as response to that. Interviews and questionnaire are proposed to be used to conduct industry analysis tools using Porter’s five forces model and broad factor analysis.
Keywords: COVID-19, Industry Analysis, Five Forces Model, Broad Factor Analysis
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Background of Study
The impact of COVID-19 has been particularly catastrophic for travel and tourism sector. It triggers economic recessions around the world. Local news publisher Berita Harian reported that there is an increment of 778,800 unemployed individuals compared to April last year.
While Bernama posted that the labour force growth was only about 0.6% in April this year, the
Tourism, Culture, and Environment stated that it will conduct a brainstorming session to come up with ideas and effective plans for the post-COVID-19 period involving sectors that come under the ministry (Tourism Malaysia, 2020).
In the context of Sabah State, the impact of COVID-19 has been particularly catastrophic for travel and tourism sector. It has changed the way people travel. It triggers economic recessions around the world. Thailand, Portugal, Jamaica, Spain, Turkey and the Dominican Republic where the Travel and Tourism sector provides between 16% and 50% of the GDP from exports are more vulnerable to declines in arrivals. All of these countries may not be able to recover in the short or medium term (Oguz, 2020).
Chan (2020) reported that Sabah’s tourism is sector worst hit by COVID-19 pandemic.
Research done by Institute of Development Studies (IDS) Sabah shows at least 34 per cent are on unpaid leave while another 32 percent of tourism-related jobs have had to take a pay cut.
Sabah will have to diversify tourism sector following China flight ban and has to tap tourists from countries other than China in a bid to salvage its tourism industry. Sabah’s tourism industry has been hit hard by the epidemic, as Chinese tourists comprise the largest number of foreign visitors last year, totaling 558,903 people.
As of today, 17.10.2020; 10:45 AM, the statistic of COVID-19 cases is depicted in the table below:
Table 1: COVID-19 Cases in Sabah
Descriptions Malaysia Sabah Percentage
Confirmed 18758 6286 33.5%
Recovered 12259 2420 19.7%
Death 176 51 28.9%
Active 6323 3815 60.3%
Source: Sabah Outbreak (2020).
The statistic above shows Sabah is in crisis post State Election that was held on the 26th of September 2020, and stricter conditional movement-controlled order (MCO) is currently being exercised in the State. News article by Yusof (2020) reported that Sabah depends heavily on international tourism, and the issue of extending help to stakeholders in tourism industry has emerged. The article also included Alin, an economist from Universiti Malaysia Sabah noted that around 17 per cent of Sabah’s tourism market is driven by international tourists, unlike neighbouring state Sarawak which has a higher concentration of domestic visitors. With such situation, many travel companies have become deserted.
Problem Statement
Based on the current situation, the impacts of COVID-19 Pandemic would require small and medium enterprises industry to reassess its current position to align and gauging strategy to align its human capital to meet the organizational target.
Figure 1: Arrival of Tourists January – March 2020
Source: Sabah Tourism (2020).
Based on the current situation, the study proposed to conduct an assessment on small and medium enterprises in Sabah tourism industry by using Industry Analysis method and human capital assessment. The justification for the need of the research is even crucial when it was reported that 26 per cent tourism players in Sabah lost jobs due to movement control orders (MCO) (Andrew, 2020). Hence it is high time that a research should be conducted to assess the industry and gauging the human capital aligning to organizational needs especially post COVID-19 pandemic crisis.
Research Questions
1. What is the current industrial position of small and medium tourism enterprises in Sabah post-COVID-19?
2. How does the outlook of Competitive Forces look like after the pandemic crisis?
3. How does Broad Factors are affecting the small and medium players after the pandemic crisis?
Research Objectives
Industry analysis is crucial because it helps a business understand market conditions. It enables the industrial players to forecast demand and supply consequently, financial returns from the business. Hence the research objective is to conduct Industrial Analysis using Competitive Forces Model (Porter’s Five Forces) and Broad Factors Analysis (PEST Analysis)
Definitions of Terms
Assessment can be defined as the action if assessing someone or something. Small and medium enterprises in services is an enterprise with full time employees not exceeding 50 or annual sales turnover not exceeding RM5 million.
Table 2: Small and Medium Enterprises Category
Services Sector/Size Micro Small Medium
Number of employee size
Less than 5 employees
Between 5 & 19 employees
Between 20 & 50 employees Annual sales
turnover
Less than RM200,000
Between RM200,000 & less
than RM1 million
Between RM1 million and RM5
million
*approved for adoption by National SME Development Council on 9 June 2005.
Industry Analysis is a market assessment tool used by businesses and analysts to understand the competitive dynamics of an industry. The analysis enables to gauge a sense of what is happening in an industry like demand and supply statistics, degree of competition within the industry, state of competition of the industry with other emerging industries, future prospects of the industry taking into account technological changes, credit system within the industry, and the influence of external factors on the industry. Industry analysis, for an entrepreneur or a company, is a method that helps it to understand its position relative to other participants in the industry (CFI, 2020).
Significance of Research
The assessment and analysis will be one precedent research that can be exemplary to be considered in subsequent similar circumstances for future research. The proposed research would provide an industrial insight of tourism small and medium enterprises post pandemic crisis and their way forward.
Literature Review
The Business Implications of COVID-19
KPMG (2020) provides an insight of new reality where COVID-19 started as health crisis, which quickly evolved into a global economic crisis and the ripple effects are still unfolding on a global scale. KPMG outlined four stages of path to recovery:
1. Reaction – all organizations are simultaneously impacted as professional and personal lives are disrupted. Volatility and uncertainty permeate society as the primary focus is on limiting damage to lives and livelihoods.
2. Resilience – controls loosen as contagion spread is contained. Consumer and demand begin to return but is constrained by lost wages, investment losses and recession fears.
3. Recovery – anxiety passes hiring, investment and consumer sentiment cautiously improve. Recovery paths for organizations will vary based on ability to limit damage from reaction stage, length and severity of recession, post-COVID-19 industry demand and willingness to adapt.
4. New reality – a number of enduring shifts will remain post recovery as many learnt behaviors born out of the crisis will become central to the new normal.
Apart from the report made by KPMG, Habib (2020) from Frost and Sullivan has identified exhaustive list of short- and long-term opportunities that will emerge from the reshaping of industries caused COVID-19. Habib mentioned that no economy, industry or business has been spared from the effects of the novel coronavirus. Some industries are affected more than others
and the impacts have been on a larger scale. According to her, every industry is experiencing its unique set of challenges that are threatening their workflow and business models. Risk mitigation actions are key for survival and to better positions companies at the point of recovery. Hence, Frost and Sullivan suggested the Post-COVID-19 Growth Opportunity Matrix, Global, 2020 as depicted in Figure 2.
Figure 2: Post-COVID-19 Growth Opportunity Matrix, Global, 2020
Based on the figure, Frank and Sullivan described the 9 key trends as:
Table 3: Description of 9 Key Trends
Connected Work
Reformed connected work scenarios will drive the need for cloud everything. New subscription-based models will witness a growing demand for UCaaS offerings that are enterprise-ready and can seamlessly integrate with existing legacy tools.
Lights-Out Operations
Autonomous “lights out” operations will drive demand for remote asset management solutions, and service providers will focus on data management strategies and data-driven business models.
Connected Living
An increased adoption of contactless surfaces post-pandemic will drive home automation and security markets. Systems encompassing voice activation technology will become increasingly popular among consumers. Smart home devices sales will see a 30% YoY increase for the fiscal year 2020.
Technology Advancement
Pandemic preparedness will speed up AI deployment and accelerate the pace of AI innovation. Between 32 million and 50 million US jobs could be increasingly assisted by technology to reduce health risks and safeguard productivity.
Supply Chain Optimization
Seamless integration of end-to-end digital supply chains will increase traceability, sustainability, and transparency within the supply chain ecosystem.
Human
Augmentation
The adoption rate of customer behavior analytics by enterprises will grow by 20% for the period 2019-2025. Post-COVID-19, behavioral data will be used to enhance healthcare systems, financial services, and cybersecurity.
Smart Cities Increased spending on technology by smart cities will lead to a surge in the adoption of digital tools like crowd analytics, and increased focus on developing digital platforms and apps for citizens.
Digital Health Digital health driven by telemedicine and robotic care will become the new standard of care delivery. The standardization of service across the care continuum will require an increase in the number of service and technology providers.
Geo-Political Balance
To protect themselves from economic fallout due to COVID-19, global organizations are coming together to restore geo-political and economic balance. Organizations like WHO, the UN and other public/private NGOs are working on rebuilding nations by ensuring that economic stimulus programs are prioritized.
Source: Habib (Frank and Sullivan) 2020.
Bowman, Crowlet and Murali on a report published by Deloitte (2020) uncovered four scenarios for resilient leaders: The passing storm, Good Company, Sunrise in the east, and Lone wolves.
Table 4: Four Scenarios for Resilient Leaders
The passing storm
After the relatively short-lived pandemic, overall global and domestic travel rebounds nearing pre-COVID-19 levels
Good company
With large companies becoming a key part of the solution, travel companies seek partnership to take advantage of the diminishing business and leisure travellers.
Cross-boarder travel becomes more seamless as a result of the increasingly globalized economy. It increased premium put on insulted and clean travel and preference for large trusted companies / chains.
Sunrise in the east
As the pandemic and economic instability persists, there is a significant decrease in business and leisure travel, since the travel becomes a privilege; however there is a meaningful shift in focus towards travel and trade to and within Asia. It accelerates adoption of Asian cultural norms and preference into customer experience and loyalty programs.
Lone wolves Within a prolonged pandemic period, travel sees a steep decline across the board, leading to massive closings in hotels, airline routes, and car rental outlets. As physical distancing becomes an ongoing way of life and social
isolation is the norm. Travel becomes limited to local / regional destinations. There can be significant decrease in highly attended events or destinations, with increase of travellers planning short-distance and low- complexity trips that require little to no pre-planning.
Source: Bowman, Crowley and Murali (2020).
Industry Analysis
Industry Analysis is a market assessment tool used by businesses and analysts to understand the competitive dynamics of an industry. The analysis enables to gauge a sense of what is happening in an industry like demand and supply statistics, degree of competition within the industry, state of competition of the industry with other emerging industries, future prospects of the industry taking into account technological changes, credit system within the industry, and the influence of external factors on the industry. Industry analysis, for an entrepreneur or a company, is a method that helps it to understand its position relative to other participants in the industry. It helps them to identify both the opportunities and threats coming their way and gives them a strong idea of the present and future scenario of the industry. The key to surviving in this ever-challenging business environment is to understand the differences between organization itself and its competitors in the industry and using it to full advantage (CFI, 2020).
There are three commonly used and important methods of performing industry analysis. The three methods are: 1. Competitive Forces Model, 2. Broad Factors Analysis, and 3. SWOT Analysis.
Michael Porter’s Five Forces Model
According to Porter, analysis of the five forces provides impression of industry and makes analysis easier. The five forces are threat of potential entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute goods and services, power of complementary good and services providers. Five forces model was created by Michael Porter in 1979 to understand how five key competitive forces are affecting an industry.
Figure 2: Porter’s Five Forces Model
These forces determine an industry structure and the level of the competition in that industry.
The stronger competitive forces in the industry are the less profitable it is. An industry with low barriers to enter, having few buyers and suppliers but many substitute products and competitors will be seen as very competitive and thus, not so attractive due to its low profitability.
Jurevicious stated that threat of new entrants is high when low amount of capital is required to enter a market; existing companies can do little to retaliate; existing forms do not possess patents, trademarks or do not have established brand reputation; there is no government regulation; customer switching costs are low; low customer loyalty; products are nearly identical and economies of scale can be easily achieved.
Strong bargaining power of buyers exerts when buying in large quantities or control many access points to the final customer; only few buyers exists; switching costs to other supplier are low; they threaten to backward integrate; many substitutes; and buyers are price sensitive.
Rivalry among competitors is intense when there are too many competitors; exit barriers are high; growth of industry is low or negative; products are not differentiated and can be easily substituted; competitors are equal size; and low customer loyalty.
In using Porter’s Five Forces Model, three important steps were identified by Jurevicious which are: Step 1: Gather the information on each of the five forces; Step 2: Analyze the results and display them on a diagram; and Step 3: Formulate strategies based on the conclusions.
Broad Factors Analysis (PEST Analysis)
A Broad Factors Analysis assesses and summarizes the four macro-environmental factors – political, economic, socio-demographic (social) and technological. These factors have significant impacts on a business’s operating environment, posting opportunities and threats to the company and all of its competitors. Broad Factors Analysis is widely used in strategic analysis and planning. It helps companies determine the risks and opportunities in the market, and that in turn becomes an important consideration when companies are developing corporate and business strategies (CFI, 2020).
Sammut-Bonnici and Galea (2015) written in an article that PEST is an acronym for four sources of change: political, economic, social and technological. It is a powerful and widely used tool for understanding strategic risk. It identifies the changes and the effects of the external macro environment on a firm’s competitive position. Strategists seek to understand external factors and evaluate how business models will have to evolve to adapt to their environment.
The impacts of external factors are mitigated through preemptive strategy and new opportunities are exploited in the wake of new competitive positions that may be created in the process.
PEST analysis is used in conjunction with SWOT (internal strengths and weaknesses, external opportunities and threats) and Porter’s five forces model (encompassing the external effect of suppliers, consumer demand, new entrants, substitute product, and competitive rivalry). PEST analysis works best when the environmental factors are analyzed from the perspective of the firm’s resources, capabilities, and core competencies. The process involved in exploring a
firm’s external macro environment involves five main stages: identifying PEST factors, analyzing possible effects on the firm, categorizing into opportunities and threats, prioritizing factors, and developing corrective or preemptive strategic action (Sammut-Bonnici and Galea, 2015).
Research Design
Research Population
Tourism is Sabah’s third largest and one of the important incomes generating sectors which supports more than 80,000 jobs before COVID-19 occurs (Sabah Tourism, 2020). The tourism sector in Sabah is also affected by the China government’s decision to suspend travels abroad for its citizens (Lajiun, 2020).
From Ministry of Tourism, Arts and Culture Malaysia (MOTAC), the total registered number of travel operating business and travel (TOBTAB) is 697 companies in Sabah (MOTAC, 2020).
Sampling Frame
Of the total number 697 companies registered under MOTAC, the companies will be filtered to fit the criteria of small and medium enterprises.
Apart from the companies, the research also proposed to conduct the data collection in several locations in Sabah which are in the area of Kota Kinabalu, Sandakan, and Semporna. The sample will be small and medium enterprises that involves in homestay, small resort, and other business under the tourism sector.
Sample Size
With a sample of 697 companies registered under MOTAC, the population size entered in software is 697 with a rate of 50% distribution and 5% major of error, the sample size will be:
Table 5: Sample size of 697 Companies with 99%, 95%, and 90% Confidence Levels
Confidence Level
99% 95% 90%
341 248 196
Source: http://www.raosoft.com/samplesize.html (2020).
Sampling Technique
Convenience sampling technique will be applied for this research. It is a type of non-probability sampling method where the sample is taken from a group of people easy to contact or to reach.
Edgar and Manz (2017) stated that it is the most common form of non-probabilistic sampling, and conveniently located around a location or internet service. This sampling technique is suitable during the movement control order is still in exercise.
Instrumentation
Interview and questionnaire will used as the instruments for data collection. An interview is generally a qualitative research technique which involves asking open-ended questions to
in the subject matter expert who intends to understand respondent opinions in a well-planned and executed series of questions and answers (QuestionPro, 2020). Two types of structured interview can be administered for the research: 1) structured and 2) semi-structured interviews.
Structured interview focuses on the accuracy of different responses due to which extremely organized data can be collected while semi structured interviews are prepared before the scheduled interview which provides the researcher with time to prepare and analyze the questions.
Conclusions
An industry analysis on Sabah tourism small and medium enterprises is important and will be beneficial to the policy maker to comprehend the outlook and insight of the industry, for government to plan for better training programme in developing human capital post COVID- 19 hits the industry especially in Sabah, where tourism industry is one of the main revenues for the State. Sections of interviews and questionnaire will be inclusive of Porter’s Five Forces Model and Broad Factors Analysis. It is hoped that the research will be carried to obtain insight of the industry that can be used by formulation of strategies in response to post COVID-19 with its impacts on businesses in Sabah tourism industry.
Acknowledgement
This work was supported by research grant Post COVID-19 Industrial Analysis and Human Capital Assessment in Sabah Tourism Small and Medium Enterprises [SDK0282-2020], funded by Universiti Malaysia Sabah (UMS).
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